FINANCE

Finance Assignment



Finance Assignment

Introduction

The accruals basis is defined as follows: “All income and charges relating to the financial year… shall be taken into account, without regard to the date of receipt or payment”. (Companies Act 1985, Sch. 4, para. 13). Realizing the importance of Financial Reporting System, governments of developing countries have started implementing Accrual-Based Accounting System and International Public Sector Accounting Standards (IPSASs). The United Kingdom has a prolonged experience of using accrual accounting for its financial statements in the public sector.

This assignment will look into different, conflicting mechanisms of accrual accounting system at federal levels and will study the initiatives of the government in adopting this new approach for financial reporting purposes. We will also discuss the application of generally accepted accounting principles within performance reporting within the state performance management and see the verification process related to the service delivery reports in the public sector.

Overview of challenges to implement accrual accounting

The conversion of the federal government's accounting methods to full-time accruals accounting is a result of a well-organized, incremental financial management reform. The adoption of accruals accounting is based on the fact that financial information needs enhancement in order to reinforce transparency of reporting, effective financial management practices, and support for governmental decision making (Harrison, Homgren, 1995, p. 30). However, this shift in the federal accounting system is full of growing challenges and problems that the government faces, in addition to facing the repercussions of global financial upheaval.

The federal government announced a set of distinctive initiatives called the “Program Review and the Expenditure Management System” that clearly laid the significance behind adopting accruals accounting to increase transparency and accountability within the public sector. However, this transformation was not an easy task since a complete change in accounting could mean a revision of prior methods that involved complexity and comprehensiveness. In a 1997 report, called “Accounting for Results”, the government announced a new set of initiatives of public sector management. Through this period, expenditures incurred are matched with the revenues earned for that time period (Audit Commission, 2001, p. 109). This allowed for better resource allocation and risk assessment decisions in various governmental departments and agencies.

One of the major challenges in this regard was the issue of accruing tax revenues. This meant that tax revenues are now to be recorded in the period in which they are earned. Another concern relates to the conversion of financial reporting to full accrual basis that could mean changing the entire reporting approach into a mere accounting exercise and nothing else. Moving the budget and appropriations to full accrual accounting could undermine the budget discipline that will emphasize more upon resources consumed than on resources earned (Harrison, Homgren, 1995, p. 30). Moreover, the complexity of accrual based supply documents leads to a resistance by the legislation to adopt a complete accrual based accounting system for budgets and appropriations (See Appendix 3).

Overview of Challenges to Publish Comprehensive Balance Sheets

Another major challenge in this regard is the preparation ...